The U.S. dollar over the past year has seen its most significant decline since 1973. The dollar index, which measures the U.S. currency against a selected group of foreign currencies (comprising America’s major trading partners), fell about 11% from January through the end of June. 

After hitting a low at the end of July, the dollar has only slightly rebounded in the months since.

Why is the dollar struggling to maintain its position as the world’s reserve currency?

Poor economic policy decisions by the current Administration.

Chaotic tariff policy, flip-flopping economic decisions, and general uncertainty of what the President will say next.

Additionally, as Morgan Stanley Research notes, “foreign investors have been adding hedges to their exposure to U.S. assets, which will likely further weaken the dollar, and that the decline also marked the end of a structural bull cycle for the dollar, which started in 2010 and ended in 2024 with an accumulated gain of about 40%.”

As Reuters has reported, President Trump is on record expressing his support for a weakening U.S. currency, “not a weak dollar but a weaker dollar,” adding that “you make a hell of a lot more money” with a weaker USD.

However, this is just a poor economic policy. Yes, there can be marginal benefits for exporters if the U.S. dollar is lower, but America is in a vast trade deficit, importing far more than it exports.

Furthermore, it has real, everyday implications for American citizens – consumers see their real wealth reduced and their purchasing power eroded.

A weak dollar is bad for the US, insofar as it makes imports – all the stuff bought from foreign countries – more expensive.

Plunging currency value, coupled with multiple retaliatory tariffs, has put lower-income American households on a path to even less purchasing power, which is particularly worrisome for already stretched lower and middle-income families.

Currently, the United States imports from other countries 36% of all consumer goods.

Imports include food, clothing, electronics, and one of the largest categories of imports, prescription medications – all relatively essential categories of goods.

A weak dollar means everyday goods are more expensive.

Ultimately, a continued path of currency decline will only hurt American families struggling to afford their basic needs.